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There was no shortage of water in London's streets today but that was not the reason Bank of America Merrill Lynch cut its rating on two of the four biggest suppliers of the wet stuff, Pennon and Northumbrian, from neutral to underperform before next month's dividend reporting season.
Pennon responded to the move with a loss of 1p at 480¾p, after briefly touching 462p, while Northumbrian shaded 1p to 244½p.
Water utilities have traditionally been firm favourites with stock-market investors because of their generous dividend policies.
But investors unsettled by the plethora of dividend cuts across the board in recent months, can rest assured that this will not be the case in the water sector.
Bank of America Merrill Lynch said: “While there shouldn't be any unexpected cuts from these four UK water stocks, dividend policies couched in real terms should adjust to a negative retail price index.”
The sector has rallied 13% on average since 1 April. The broker says there have been no material changes to the positive since then and the rally seems premature in the context of the potential disappointment at Ofwat's review draft in July.
Pennon and Northumbrian are now trading 11% above the broker's based price target and it continues to believe that Severn Trent, up 7p at 1133p, remains the cheapest on fundamentals.
But its enthusiasm remains restrained by the prospect of flat revenue growth and the implications for sentiment after a recent credit-rating review. Severn Trent continues to be rated at neutral.
Shares generally clawed their way back from opening falls with the help of an opening rally on Wall Street this afternoon where investors celebrated news of the biggest surge in consumer confidence during April for six years.
The FTSE 100 index rose 34.2 to 4399.52 while in New York the Dow Jones soared 150.38 to 8427.7.
Speculative buying lifted Hammerson 3½p to 288½p. The mutter from the gutter claims the property developer may soon find itself on the receiving end of a bid from rival Land Securities, down 7½p to 489p.
Weekend reports claim chief executive Francis Salway is under pressure to come up with a radical business plan within the next six months, or lose his job.
Nomura has a buy rating on Land Securities and has raised its target from 582p to 633p. Rival British Land, down 1p at 396p, is also rated a buy with its target raise from 315p to 341p.
Oil industry services specialist Wood Group climbed 15½p to 282¾p on gossip that Amec, up 7½p at 639p, may be looking to bid.
AIM-listed Baltic Oil stood out with a rise of 3¼p to 18¾p after securing a contract to supply up to 35,000 tons of fuel oil from Belarus. Only last month, Baltic signed a contract with a major supplier in Kazakhstan for 25,000 tons a month.
Dealers say Baltic can make a turn on the trade through its subsidiary Baltic Hydrocarbons as well as earning money from throughput fees at the terminals in Kaliningrad, which significantly boosts profits.
Standard Life, down 2.15p at 201.75p, dribbled out a total of 1.6 million shares between April 24 and May 8, at prices ranging from 10p to 16p.
Alternative energy specialist Ceres Power, up 8½p at 180¼p, is to receive a £2 million handout from British Gas after testing of its 1-kilowatt Combined Heat and Power (CHP) products met all their targets.
Ceres' aim is to develop a fuel-cell power-boiler that can be manufactured in the UK. Ceres has already struck major deals with British Gas for the natural gas products and Calor Gas for LPG products and has signed up to buy a significant number of units when they are ready in 2011.
Production has begun at Anglo Asian Mining's new gold and copper mine in western Azerbaijan.
Gedabek is expected to produce around 70,000 ounces of gold in its first full year of production. The directors believe that operating costs for the Gedabek project will be relatively low. The mine has an initial six-year life, with target production in excess of 300,000 ounces.
The Board believes that, through further exploration in the region, this can be extended. The shares rose 2½p to 18p.
The credit rating agency Experian fell 4p to 466½p despite Morgan Stanley raising its target from 490p to 560p.
Cable & Wireless, which also reported last week, fell 2.9p to 134.3p. Credit Suisse has downgraded the shares from neutral to underperform.
